Correlation Between Ab Equity and Ultra Short

Can any of the company-specific risk be diversified away by investing in both Ab Equity and Ultra Short at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Ab Equity and Ultra Short into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ab Equity Income and Ultra Short Term Municipal, you can compare the effects of market volatilities on Ab Equity and Ultra Short and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Ab Equity with a short position of Ultra Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ab Equity and Ultra Short.

Diversification Opportunities for Ab Equity and Ultra Short

-0.06

Correlation Coefficient

Ab Equity  Ultra Short

Good diversification

The 3 months correlation between AUIAX and Ultra is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Ab Equity Income and Ultra Short Term Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultra Short Term and Ab Equity is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Ab Equity Income are associated (or correlated) with Ultra Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultra Short Term has no effect on the direction of Ab Equity i.e., Ab Equity and Ultra Short go up and down completely randomly.

Pair Corralation between Ab Equity and Ultra Short

Assuming the 90 days horizon Ab Equity Income is expected to under-perform the Ultra Short. In addition to that, Ab Equity is 42.58 times more volatile than Ultra Short Term Municipal. It trades about -0.27 of its total potential returns per unit of risk. Ultra Short Term Municipal is currently generating about -0.22 per unit of volatility. If you would invest  966.00  in Ultra Short Term Municipal on October 12, 2024 and sell it today you would lose (2.00) from holding Ultra Short Term Municipal or give up 0.21% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Ab Equity Income  vs.  Ultra Short Term Municipal

Ab Equity Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ab Equity Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Ultra Short Term

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Short Term Municipal are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Ultra Short is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ab Equity and Ultra Short

The main advantage of trading using opposite Ab Equity and Ultra Short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ab Equity position performs unexpectedly, Ultra Short can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Ultra Short will offset losses from the drop in Ultra Short's long position.

The idea behind Ab Equity Income and Ultra Short Term Municipal pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.